Detailed plan to compensate V1 users without issuing PERP

A lot of (proverbial) ink has been spilled discussing how to compensate V1 users who lost funds. It’s been a difficult situation for the entire DAO. While V2 is a clear improvement and Perpetual Protocol is better off for it, the material losses incurred by many V1 users are damaging to the DAO’s reputation. Making matters worse is the negative price performance of the PERP token, making the PERP based proposals even more difficult to implement fairly.

This post will outline a simple way to fully reimburse affected V1 users. This proposal does not require the sale of PERP.

Value Token buy-back

The DAO can take example from other organizations that have had to reimburse their communities in a safe and fair way, namely as a result of hacks. This proposal is modeled on bZx’s reimbursement program. There are similarities to what was reposted by @RDL last week.

Mechanism description

  1. All affected V1 users will receive a single P100 token for each $1 of PnL they lost. Each P100 token will be entitled to be repurchased by the Perpetual Protocol DAO for $1.00.

  2. A liquidity pair will be seeded between P100 and a stablecoin or ETH on Uni v3.

  3. Perpetual protocol commits to making recurring purchases of P100 tokens from this new liquidity pool with [40]% of the fees destined for the treasury on an hourly/daily/weekly basis.

  4. The recurring purchases will end when all P100 tokens have been repurchased and burned.


Assuming the treasury collects ~$5k/day or $150k/month or $1,825,000/yr for the foreseeable future, below is the amount of time it would take to make V1 users whole, assuming all affected users hold their P100 tokens. Of course the goal is for the DAO to grow, which would lead to repayment happening much faster.

Amount to be repaid Time required @ current revenue
$1.3MM 22 months
$2.5MM 42 months
$3.7MM 62 months

In practice, however, holders would not have to hold this long.

P100 holders that require immediate liquidity can choose to sell their P100 tokens into the liquidity pool. There will likely be a material amount of sellers that will prefer to retrieve some of their funds immediately. This sell pressure will make the repurchases less expensive for the DAO. P100 holders who wish to get reimbursed in full can simply wait until buying demand from the DAO’s recurring repurchases leads to a trading price in the liquidity pool close to $1.

At any given point in time, the ultimate price of the P100 token in the liquidity pool will reflect the holder’s opinion on whether or not they can get more yield by waiting for Perpetual Protocol revenue-based repurchases or by selling and deploying the capital elsewhere.

Partnership opportunity: Cinch

We are putting forward our platform, Cinch, as an implementation partner for Perpetual Protocol.

A partnership with Cinch has two distinct advantages:

1) Immediate value for the PERP community. Our extensive network of institutional DeFi investors and market markers is looking to deploy capital into these kinds of token opportunities. By listing P100 tokens through Cinch, the price of the P100 token will be supported by buying demand on top of Perpetual Protocol’s recurring purchases so that affected V1 users can cash-out of their P100 position faster.

2) Save and protect development resources. All of the infrastructure can be setup in a matter of minutes by a non-technical team member via Cinch’s platform.

Benefits & Risks

Benefits to Perpetual Protocol

  1. Positive signaling to the market
  2. Improved DAO reputation
  3. No dilution or sell pressure on PERP token
  4. Extremely easy and quick to setup through Cinch

Benefits to affected V1 Users

  1. Reimbursement in full (depending on amount chosen)
  2. Immediate liquidity

Benefits to Cinch

  1. Grow ecosystem partners
  2. Bring new asset to investor network

Next steps

We would really love to hear the community’s feedback on this proposal. Hopefully this provides the basis for something everyone can come out to vote on. Of course the next step would be a Snapshot vote if this generates enough conversation.

1 Like

Welcome and thanks for your proposal. I’m sure the v1 user community will be interested to look it over.

One question is how $1.3MM, 2.5MM and 3.7MM was calculated? Do we have a csv how each users would be receiving under each option? Second question is the team/large stake holders’ feedback on the 40% treasury income, since its higher than the 17.5~25% in the other proposal.

@RDL thanks for reading the post thoughtfully!

  1. The $1.3MM, $2.5MM, and $3.7MM figures were taken from other governance proposals that discussed v1 reimbursement possibilities. Unfortunately I was limited to two links for my post so I had to remove references.

  2. The [40]% was also simply an assumption. Your example of using 17.5-25% of monthly treasury fee income is probably a better place to start.

The mechanism I describe of buying back P100 tokens from a liquidity pool as a way to reimburse affected users is very similar to your proposal to buy-back PERP.

I would say the notable difference is liquidity.

If protocol revenue is set aside to buy-back PERP, the maximum reward an affected user can obtain on a weekly/monthly basis is equal to [period buy-back]/[# of affected users who stake].

By issuing P100 tokens and making recurring purchases from a liquidity pool, the users who want immediate liquidity can sell into the pool. This also lowers the cost of P100 tokens that remain to be bought back.

One mechanism is not better than the other. Your proposal is very well thought out and makes a lot of sense. My goal in making this proposal was to bring forward a reimbursement design that has been used by other organizations before.

Habs4lyfe123, I believe the $3.7MM is actually the minimum amount (op4-op2) assuming we don’t do the sign up sheet and all 25 users want to get compensated. The full compensation will be order of magnitude higher. The reason I asked for reimbursement detail is that if the time frame is too long (eg. 10+ years), I see a scenario that if no one wants to buy P100 from the pool, the v1 users who don’t want to sell P100 at a discount of would have to wait until the end (year 9 or 10?) after everyone else cashed out. So this method works only if the time duration is not that long (because who knows what will happen after 10 years), which would require higher % treasury income to shorten the duration. Having said that, at this point, as long as the proposal can receive enough support from the large stake holders, I’m all up for it.

I upgraded you to “member” status – sorry about the link limit, it’s the forum software being quirky.

I see a scenario that if no one wants to buy P100 from the pool, the v1 users who don’t want to sell P100 at a discount of would have to wait until the end (year 9 or 10?)

@RDL optimistically speculators will see a low P100 price as a sort of bond, so after any P100 holder liquidates, they will come to buy the discounted P100 in the reasonable expectation that future buybacks will bump the price for a low-risk profit.

@habs4lyfe123 I think we should remove 1.3MM and 2.5MM as the vote option (unless you want to invoke the sign up sheet again for the 1.3MM). Otherwise those amount is not enough to cover everyone even for just the op4-op2 amount.

Same comments to previous proposal around sunsetting V1. If you think that token holders will vote yes to give away their fees then you must be dreaming. We’ve been waiting for fee distribution since V1 and it’s finally coming with V2 - I honestly doubt there will be any token holders (myself included) who will vote yes for this.

The majority of users that matter were compensated - retail. Large whales simply extract from the system through arbitrage. We need to let the team focus on building V2 out so we can compete and get those fees rolling into treasury

Hi @thewei ! Appreciate the feedback :slightly_smiling_face:

Just so I understand, are you saying (a) that you disagree with compensating V1 users or (b) that you prefer using PERP tokens to compensate affected V1 users?

Hi thewei, If I understand correctly, are you mostly worried that the Perp price could drop and/or your stake rewards could be reduced as a result of this proposal?

The treasury fee income is the overflow from stake rewards/LP rewards/insurance fund. So your rewards won’t be affected.

In terms of Perp price and growth, doing the right thing to compensate the users has a tremendous value for Perp’s future growth. It shows the future investors and users that the team is indeed credible, responsible, reputable and trustworthy. This will lay the very foundation of the growth that you wanted.

We know the compensation amount we are talking here could be quite substantial, that’s why we hope to work through it together with the team/stake holders to come to a common solution. I believe the end result would certainly be much better than doing nothing at all.

1 Like

Believe it or not, we’re indeed retail users who lost 90% of our free collateral here on this platform. We’re not company or institution, we’re working-class individuals just like most of the users here. We learned arbitrage strategies from Perp’s own ads. Arbitrager are creating value by playing a role in stabilizing the difference between the mark price and the index price. There is nothing morally wrong with arbitrage that excludes the arbitragers from receiving proper compensation.

By compensating the affected arbitragers properly, Perp can help attract prospective arbitragers and retain current ones who will help add stability and security to the platform.

No. I just think that this is a waste of time. As a token holder why would I want my rewards to decrease?

Disagree. How does giving money to a small group of people help with price growth at all in any way? The valuation of the token is going to be based off a multiple of the DAO treasury - meaning the more you siphon it away the lower the valuation of the token.

The team already has a strong track record of building with a group of strong investors that already signal credibility, responsibility and being trustworthy.

Disagree with compensation completely. Would rather team focus on building and growing.

There is no need to compensate arbitrageurs. There is already ample returns as evidenced by the trading volume on the exchange. Prices have been stable on V2.

One last point I’d bet is that the majority of these people talking on the forum and wasting the team’s time don’t hold tokens. I wonder if something like the uniswap temperature check might be interesting in the future as then the team can actually focus on building rather than responding to these pointless proposals

Thewei, your rewards won’t decrease because we will be using the overflow income for the compensation. Stake rewards, LP rewards and insurance fund are already fulfilled and won’t be affected. @LeeKB please chime in to help explain the treasury fee income structure. Thanks!

Reputation is the single most important factor in determining the success of a business. Would you want to put your money to a bank that has a history of lost user funds and angry users? For the long-term prosperity of Perp and therefore its price growth, compensating the affected user is a small price in the grand schema of things. From our side, we’ve been working with the team to lower the compensation amount to a minimum and would like to hear from the large Perp holders on their thoughts on the proposals.

Errr yes it will. You want to spend 40% of fees. Assuming insurance fund is full right now 10% of those fees goes to the DAO treasury. You want to siphon off 40% of that by the sounds of it which affects the size of the treasury and thus the value of the token…

I think it’s been said time and time again from the foundation team that there weren’t lost funds - it’s purely down to the mechanism of the vamm from Perp V1. Had they simply let the exchange do what it did then large whales would have had an edge of retail in exiting positions. So from my point of view (unless foundation team will correct me here in that there are lost funds??) it’s not really relevant.

From a reputational standpoint the protocol already has a solid one:

  • Team is doxxed
  • Solid investors and backers
  • Constantly delivering product for >2 years
  • Growth

Anyways, I don’t think we will see eye to eye around any of these points but I honestly doubt at this point any of these votes will pass given my points above.

The 40% refers to 40% of fees that are placed in the treasury:

  1. Perpetual protocol commits to making recurring purchases of P100 tokens from this new liquidity pool with [40]% of the fees destined for the treasury on an hourly/daily/weekly basis.

This is separate from the fees shared with PERP stakers. I guess you can still argue that these fees would presumably go toward protocol development, promotion or rewards etc., but as of right now there is no plan for how the treasury fee income will be spent.

So this confirms my point above - the DAO treasury is reduced in size and thus the value of the PERP token goes down (given a lot of valuations right now are based on the size of the treasury this directly siphons value out)

My bad, didn’t read your point above correctly :sweat_smile:

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Thewei, I’m glad that we’re having this conversation, because it seems there’s a misunderstanding. You said 10% fee goes to DAO treasury. That refers to the trading fee. What this proposal is proposing is the 40% of that 10% trading fee. I personally have proposed 17.5% instead of 40% in my proposal here, and we can go as low as 10% if we invoke a sign-up sheet to lower the compensation amount to 1.28M, so that’s 10% of that 10% trading fee. Is that something that would earn your support?

My point is that you are taking an amount from the trading fees that are supposed to go to the DAO treasury. I’m against any form of these fees going from treasury for this proposal